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View 2004 Snapple Audit

New York City Comptroller William C. Thompson, Jr. is demanding that the Panel for Educational Policy reject a Department of Education (DOE) contract with Octagon, Inc. to provide marketing services to the DOE.

In a letter to Panel members on Sunday, Thompson exposed the troubling and ongoing entanglements that the DOE has had with Octagon and the failed Snapple deal. You can view the letter at www.comptroller.nyc.gov.

“The Snapple and Octagon deals were bad the first time around,” Thompson said. “We teach our kids to learn from their mistakes; the DOE should learn from its mistakes.”

Tonight – Monday, September 14 – at 6 PM the DOE will ask the 13-member Panel to vote in favor of entering into a contract with Octagon for consulting services and to market/merchandise and administer revenue-producing sponsorship programs for the DOE physical education programs. These programs include the PSAL (Public Schools Athletic League), CHAMPS (Middle School Sports and Fitness League), and the Division of Health and Fitness. The Panel’s agenda item notes that contract will be in effect retroactively as of January 1, 2009 – more than eight and a half months ago – and extended for five years.

Thompson, however, previously has exposed the “tainted” relationship between Octagon and the DOE. In an audit – available at http://www.comptroller.nyc.gov/bureaus/audit/03-18-04_ME04-123A.shtm - in 2004, Thompson examined the processes by which DOE awarded a vending machine agreement to the Snapple Beverage Group, Inc. and authorized Octagon to serve as its marketing agent.

The audit found that the process that the DOE followed in awarding Snapple an exclusive vending machine opportunity in about 1,200 City schools was fundamentally flawed. Thompson noted that there were minimal solicitation efforts, an inadequate request for proposals package, and a defective bid evaluation and selection process. Furthermore, Octagon stood to realize exorbitant compensation for its services.

In his letter to the Panel, Thompson recounted how in 2003 the DOE awarded the marketing contract to Growth Through Sports Marketing, LLC, (GTSM). Thereafter, one of the three firms that comprised GTSM subsequently was purchased by Octagon. Further troubling, the DOE gave the marketing contract to Octagon rather than reopening the Requests for Proposals (RFP) process. Without explanation, the DOE then charged Octagon with issuing an RFP to select a vendor for marketing the DOE brand and providing products in school vending machines.

“Octagon failed to do so and instead presented a number of inadequate and confusing power-point presentations to vendors, such as, Coca-Cola, Veryfine and Snapple,” Thompson wrote. “Octagon also failed to evaluate proposals or even to adequately describe the scope of the opportunity to all the potential bidders. Based on this absurd process, the DOE then awarded a $40.2 million contract to Snapple. I believed then, and I continue to believe, that the process was tainted.”

In his letter, the Comptroller also noted that the DOE is providing conflicting information to the Panel. Information provided to the panel indicates that the new contract was to start in January 1, 2009; other material indicates that the contract is not to be retroactive, or backdated.

Finally, Thompson questions the “exorbitant” rate – 15% to 18% - that the DOE plans to allow Octagon to keep from the commissions earned by the vending machines in the schools and the marketing of the DOE brand name.

“Not only has the DOE not disclosed whether that fee is based upon gross or net revenues, but it fails to present a reason why Octagon is necessary in the first instance. The DOE should issue and evaluate the RFP on its own and the millions saved in Octagon fees would then go where it belongs – to our schoolchildren.”

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